Investors are milking Oceania dairy opportunities – update

Investments into Australasian dairy have gathered pace in recent months exposing the two countries’ different fundamentals, according to Cambridge Associates’ Peter Roney.

*adds further comment.

Investment into Australian and New Zealand dairy has been picking up pace in recent weeks from a range of investor bases.

ACE Farming, the dairy investment arm of Duxton Asset Management, has recently expanded its portfolio, according to Weekly Times Now and in August, a Scandinavian pension fund invested A$20 million ($17.7 million; €13.9 million) into dairy farms to lease to Murray Goulburn, the country’s largest milk processor. Various Chinese entities, such as public-private partnership, the Beijing Australia Agricultural Resource Cooperative Development Fund, are also eyeing the sector.

In New Zealand, Craigmore Sustainables recently closed its first fund on $225 million, Southern Pastures received a top-up commitment from Swedish pension fund AP1, and Aquila Capital launched a New Zealand dairy-focused debt product last week. The German alternative investment house is also close to closing its Australian dairy fund on around $200 million, according to sources familiar with the situation.

The increasing activity in both markets has enhanced competition between Australian and New Zealand dairy investment professionals. But this can create a dangerous position for investors if they decide to choose one jurisdiction over another, according to Peter Roney, managing director at investment consultancy Cambridge Associates.

“There are widely differing views on this topic – normally in support of one fundraising effort or another,” he told Agri Investor. “But I think it’s very dangerous to generalize about agriculture even within a relatively small geographical area such as New Zealand. I think you will find that investing in a dairy opportunity, just because it is in New Zealand, for example, can be a very dangerous strategy.”

The two markets are attractive for varying reasons, he added.

“I think most people would agree that New Zealand in principle has advantages over Australia, particularly in terms of climate, but the proponents of Australia would claim that New Zealand dairy farms are now so expensive relative to what you can buy for the same money in Australia that the latter is the better current investment.”

“You are likely to have to pay more in New Zealand in absolute terms but with the right conditions and management it can still make sense from an investment perspective.”

“It will almost certainly be cheaper to buy in Australia, but to a certain extent this should be the case to reflect the greater risks,” he added. “If the risks are understood upfront, the price takes this into account and you have access to experienced and skilled management, investing in Australia as part of a diversified dairy portfolio could make good investment sense.”

He added: “What is for sure is that despite the inevitable global price gyrations for dairy produce, the global demand is likely to continue to rise, especially in China and developing countries in Asia which should be particularly good for both Australia and New Zealand.”

Watch out for Wednesday’s editor’s letter discussing this growing competition.